Dollar extends losses after weak ISM data

SaumyaVaishampayan

PolyaLesova

NEW YORK (MarketWatch) — The Japanese yen rose against the dollar on Monday, with the greenback extending losses against its major rivals after data showed an unexpected decline in a U.S. manufacturing gauge.

The Institute for Supply Management’s index fell to 51.3% in March from 54.2% in February, showing that the pace of expansion in U.S. manufacturing slowed sharply last month. Economists surveyed by MarketWatch had expected the index to remain at 54.2%.

The dollar extended losses following the ISM data.

The ICE dollar index
DXY, -0.18%
which measures the greenback’s performance against six other major currencies, slipped to 82.744 on Monday afternoon from 82.998 on Friday.

The WSJ dollar index
BUXX, -0.22%
which tracks the dollar’s moves against a slightly wider basket than the ICE index, declined to 73.29 on Monday from 73.56 on Friday.

The dollar
USDJPY, -0.70%
fell to 93.40 Japanese yen on Monday, compared to ¥94.22 in North American trade on Friday.

The Nikkei Stock Average declined 2.1% on Monday after the Bank of Japan’s quarterly “tankan” survey on business sentiment disappointed investors, leading to weakness in the dollar-yen cross that was made worse by the ISM survey, according to Kathy Lien, managing director of FX Strategy for BK Asset Management.

There has been a “very strong” correlation between Japanese stocks and the dollar-yen in recent months, she added.

The Bank of Japan is scheduled to meet on April 3 and 4, and February’s surprising contraction in industrial production may have strengthened the case for more quantitative easing. Japanese Prime Minister Shinzo Abe has pressured the central bank to implement aggressive monetary easing to boost the economy.

“There’s profit taking and position squaring ahead of the Bank of Japan meeting. The short yen trade has gotten really crowded over the past few months,” said Lien. A short trade on the yen means investors are betting the currency will decline.

“BOJ really has to surprise to the upside in order to send the yen lower,” she said, which could happen if the central bank “comes out of the gate swinging” and announces an open-ended quantitative-easing program.

“Short-covering is making the yen the best performing currency today,” said analysts at Brown Brothers Harriman in a note to clients.

The U.S. ISM data and PMI data from China, which left economists cautious about the Chinese growth outlook, both disappointed investors, said Jose Wynne, head of FX research at Barclays in New York.

“Nothing to panic about but certainly disappointed. This affects sentiment globally,” he said.

European stock markets are closed Monday for an extended Easter break.

The euro
EURUSD, +0.2137%
traded at $1.2847 compared to $1.2821 on Friday. The euro dropped about 2% versus the dollar over the course of March as it revisited November lows, and fell 2.8% in the first quarter.

“European events favor the euro a bit after quite a bit of selloff last week,” said Wynne. He noted that there was some relief in the market after the resolution on the Cyprus bailout, but investors are once again concerned about Italy where politicians have been unable to form a government after inconclusive parliamentary elections. “The market is unlikely to gain any direction in the near term, ” Wynne added.

The British pound
GBPUSD, +0.2772%
rose to $1.5228 on Monday from $1.5193 Friday.

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